Reverse Split: Why doesn't it work

A reverse split in stock means reduction in the number of stock floating in the market. At the same time, due to reverse split, its par value or earning value increases  but the market value of the total number of share remain same.

Now lets look at some of recent stocks which have gone through reverse split process and how it has fared in the market. Let me start with recent one I can recall is Sun Microsystem (JAVA). Before reverse spliting in Nov of 2008, the stock was trading around 5.60$. Once the 1:4 reverse split was done, the stock price shoot up to 20$ something but slowly it felt back to 5-6$ range again, thus rendering attempted effect of the reverse split.

What happened is that the stock holder were the one to lose money on it. Else the market value fall back, number of share fall back.

Lets look AIG. Recently, the stock market hammered AIG so much so that they had to take 100s of billion dollar from US govt. Still the end result was negative. The stock price kept on falling back. It went to below $ value before coming around 1.5$. Now the smart people at AIG plus the US govt did reverse split in the ratio of 1:20. So 20 share whose worth was about 30$ lost 10$ on the opening of the market after reverse split. The stock is keep falling back to new low everyday.

Who is losing money here. Its the stock holder.

There are many more site example of reverse split with few sucess and rest failure for the investor. There are many reason why company do reverse split. The reason are known to them only. One thing I can understand is that they take advantage of good time and offer millions and millions of share to people and when time goes but, they do the reverse split, just ripping of the investor.

This time, the govt seems to be a partner in this crime. Whether they accept it or not but they have played in hand with big coorporation and looted small investor like you and me.

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AIG and its Reverse Split frustration on the stock holder

AIG and its Reverse Split frustration on the stock holder

Seeing that AIG has reverse split it stock for 20:1 ratio, may investor have already lost 30% since yesterday. And they are really upset about this whole fked up thing. Even the govt did not helped the investor (The Govt is forgetting that these investor are also tax payer and they are top 20% tax payer in US. Now this is called ripping off.

Here' some of my favorite comment posted by supposedly stock holder. I am in no way responsible for these comments. (Sorry)


"I am new to this...I want to know,
I bought at 1.40, and now reverse split (20/1) how much do i have?
and is it good or bad?  sell or hold?

Please help.. thanks "

This guy is totally lost in some wonderland. Dude you lost. Get a life and understand.

"Etrade does not allow you to short it.  Some scammer on the board told
me Scott trade can do it while sending me his referral code. I don't
trust this loser.  I believe this stock will definitely go under $2
again.  It is a Zombie company already.    If you find a way to short
it, please let me know. I will really appreciate it."

This has to be Cramer student. Not sure how he is going to do it but he is bend upon to short AIG. Good Luck Joe

"Why would institutions buy a stock that is 80% owned by the
government?  I did own 3,000 shares and now own a whopping 150 and
lost 1/2 my money.  If it doesn't go up tomorrow I will take my losses
and sell.  My gut tells me this stock is going to tank.  Only reason
people bought before is because it was so cheap.  I just don't see
people paying $18-20 a share to own this stock.  That's my opinion
anyway and I sure hope I am wrong!  If anyone feels the opposite I'd
love to hear why you think otherwise."

The most sensible guy on the board. Still he is losing money.

Bob say "One idea i have been going over on why gov dropped the money in AIG
when it did is this:
gov. invested in it at the time so to prevent it from effecting a
global economy with its crash. In essence the gov. bought the world
some time to reorganize and plan a future without AIG.  This time has
been used by AIG to stabilize and sell its core profitable businesses
while slowly converge to a leftover non-functional company.  This
would reduce its impact on the world economy upon its collapse.  So
they will work hard to pay back as much as possible of the loan, but
when they tank, the gov. will step in and say "Well, we knew it
wouldn't last, BUT we were able to mitigate its effect and are in a
better position because of it" - no one can say a thing after that.
Hope this made some sense, and I hope I am wrong on this
assumption .... "

Yeah Blame everything on govt.

And the best

" can't believe AIG just Ripped me off, 20:1 reverse split!!!!!!!!
Are you kidding me?????
I hate when companies pull the 'ol "reverse split" scam.
Now my share count is down and the stock will fall back to a buck
twenty.
What a disappointing day " 

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AIG: Options

After reverse splitin, it seems that AIG is not going to come out of trouble land. Its has been tring hard to adjust in these time of fear and recession. However, after investor approved the 1:20 reverse split, AIG was down to 13-14 $ during premarket to only open at 19-20 $ mark.

However, the option where issue before this split, are going to remain same, i.e., instead of 100 share now, the exercised option will get 5 share of AIG.

Will this reverse split help AIG to come out their troubled past, onlt time will tell. A

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Steve Job and his transplant: Why media are frowning over it

Get life and move on! Atleast Steve Job life is much worth than most of these media guys who are cribbing about his liver transplant and saying that money talk. Oh come on you losers!!! Yes money talk and he did the right thing by going to Memphis to get his liver transplant.

“It’s a money-grab,” Wiesner said in a telephone interview. “Someone has to say this isn’t right. We need to maximize the utility of these livers and save the most lives we can.” Ah here is another frowning crack pot (in my view). Did you say "Someone has to say this isn't right?" So when did you become social watchdog of the society. I am pretty much sure that if you were in the same situation as Job, you would grab the first flight to the destination. Ofcourse you won't go in your own jet otherwise people would critize you. Get a life and buy APPL share if you missed the boat.

 Ah there are other social watchdog. I should control my emotion for the moment.

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Earning for June 26, 2009

The following company are going to report earning today. I am going a small brief what to expect from these company from various sources, I research.

1. AZZ Incorporated AZZ for Google source click HERE and for Yahoo click HERE

The estimated earning for AZZ is around 0.67 cents and you can expect surprise expection upto 100%.

2. Gerber Scientific GRB for Google source click HERE and for Yahoo click HERE

The estimated earning for GRB is expected around 0.01 cents with 60% surprise expection.

3. KB Home KBH for Google source click HERE and for Yahoo click HERE

The estimated earning for KBH is about ($0.67) with surprise 80%

4. Shaw Communications SJR for Google source click HERE and for Yahoo click HERE

The estimated earning for SJR is expected to be around 0.27 cents with surprise expection upto 100%

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Factor to consider before investing: Keep emotion out of the way.

Individual investors don't has to many tools to evaluate when it comes to investments. Most of the time, their investment is based on emotion sentiments rather than pure valuation. Take a look for example investment in well known company such GE. We all know that GE has been there for so long and assume that it will be there for a while. Combining stock price hammering in the recent time add further incentives in buying the stock. Agreed that 80 percent you will be right and will call a right decision. What if we can add some more information in further strengthening our belief that the investment we make are safe. With this idea in mind, Lets explore some of things we should consider while investing.

The first and foremost thing is the company standing in the market. Lets for example take GE. GE is leader in most of the segment. They are present everywhere, from home to office to finance to transportation to industry. Think for a while any other company which has so large presence in different sector. Based on the fact that GE is someway or the other, has become an integral part of our life. Thus the basic sentiment comes into play, if it is part of my life, I am going to trust the company and invest in it. This is very well thought investment strategy.

The second important thing to consider is the cash flow the company has. In case of start-up company, we don't have any cash reserve but cash-deficit account. But when we come to established companies like GE, we can see how much the company have made profit from the previous investment and how they are utilizing the money in future. Are their investment making a ground for future growth of the company. A quick look at the financial statement will give us an idea.

Another important factor is to consider is free cash flow. Free cash Flow can be calculated as FCFE = net income + depreciation - fixed capital investments - working capital investments +/- net borrowing. You have to take this in consideration with various other factors. A recent articles on thestreet.com [Here] give a better idea for more savvy investor. But for common investor it basically mean that if the company has more cash flow, it signal strong growth.

Another factor to consider is that future growth of the company. For example, is the company investing into those technology which will affect us in future. For example, the Green Power or the renewable source of energy; transportation sector, how we are going to travel in near future, Health sector, etc for a large conglomerate like GE.

Based on various factors some of the above will be able to help a common man to make a wise decision. I am not saying that consider these but take these factors into consideration before you invest. There are more sources to gather before you before you make investment. Use your money wisely.

You can take same view on
Siemens AG SI
Honeywell International Inc. HON
Tyco International Ltd. TYC
The Walt Disney Company DIS
Raytheon Company RTN
Emerson Electric Co. EMR
3M Company MMM


Comments are appreciated.

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GE: Is it attractive enough for new entry

There are many theories and principals about market and stock. I won't go into those theories as I am not expert on most of the method and its elements. But as a layman who don't know much about all those technical issue which affect a stock and how it price are valued, I will try to explain why it worth to consider GE as a good long term play.

1. When we think about our safety of investment (Question like Is my money Safe after events like BearStern, Washington Mutual, General Motors, etc.), the most important factor to small retail investor is safety of their money. No one enter stock market with a tacit understanding about the risk involved in investing money. With these things in my mind, for common man, GE is the most safest stock to invest. Their risk of losing whole money is zero (Consider all failure, Bankruptcy).

2. Stock Valuation is another thing to consider. Do you want to invest in company such as Google whose share values range from $100 to more $700 (last 4 year) or company whose share values has been in comfortable range even in recession condition of market. If you have high risk appetite, invest into high return valued share such AAPL, GOOG, GS etc to name a few. But I am sure you wont invest all your 401K or your entire saving into these stock. You would play defensive. GE is the best defensive play in the market.

3. Entery Point is another attractive value for GE share. The market overall has been betten down including GE. But with the pospect of recovery and sell, GE is the best for conservative player.

4. Dividend is another factor to consider. Even after being hit by recession, though GE has reduce dividend pay to 0.10 cents for the stock, the yield is still about 3.5% or .86% per quater. Pretty sure, once the market recover, the dividend will be increase.

5. Future product and growth of GE product. GE is already looking at the future, such as green power (I am going to write another articule), Home-improvement, medical-industry, infrasture, etc, the investment look safe for common investor.

Summary from Google Finance
General Electric Company (GE) is a diversified technology, media and financial services company. Its products and services include aircraft engines, power generation, water processing, security technology, medical imaging, business and consumer financing, media content and industrial products. As of December 31, 2008, GE operated in five segments: Energy Infrastructure, Technology Infrastructure, NBC Universal, Capital Finance and Consumer & Industrial. In January 2009, the Company acquired Interbanca S.p.A., an Italian corporate bank. In April 2008, Oil & Gas completed the acquisition of the Hydril Pressure Controls business from Tenaris. In September 2008, the Company announced the sale of its Japanese consumer finance business to Shinsei Bank. During the year ended December 31, 2008, the Company acquired Whatman plc; Vital Signs, Inc.; Merrill Lynch Capital, and CitiCapital.

If you have question feel free to write. I would more than happy to answer.

Discloser:

I own GE share.

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